What is Open Finance and how does it vary from Open Banking?
Open Finance is a data-sharing platform that allows users to share their financial information with third parties, including their bank accounts. After Open Banking, this is the next step. The API movement established the standards that allow individuals to exchange their banking information with third parties using APIs.
Individuals will now have a secure way to transfer financial data to and from third-party organisations. To construct new financial products and services that are linked to customers’ bank accounts and adapted to their personal financial condition and demands, these companies can use banking data, always with the permission of each individual.
How Open Banking was started
In 2016, the UK was one of the first countries to introduce Open Banking. The Competition and Markets Authority (CMA) enacted a rule at the time that compelled the nine largest banks in the country to grant direct access to their data to licenced startups. – After research indicated that older, larger banks didn’t “have to compete hard enough for clients’ business,” they decided to do this.
One of the solutions they came up with was Open Banking, which was born as a result of this effort. A lot has changed since then: many other nations have adopted similar legislation, and new digital players have thrived around the world thanks to these new data-sharing models.
The next step: Open Finance
However, the evolution did not end there. When it comes to Latin America, where the majority of the population lacks access to financial services, the potential influence of Open Banking has been restricted. People would not be able to use the new products and services if they did not have access to banking data.
Therefore, some countries have developed an Open Banking model that extends beyond banking to include other types of financial information.
How it has changed: the addition of fresh data sources
This open banking to open finance moving means that information gleaned from a variety of sources outside of traditional banking institutions may be used to create new financial services that benefit a broader range of people. A wide range of traditional and non-traditional financial firms are included in this data set, including big tech, fintech, and platforms for the gig economy.
Open Finance’s benefits: financial inclusivity
Fintech entrepreneurs can gain a better understanding of the real financial activities and requirements of the general public by using these new non-bank sources of financial information. If their daily transactions don’t take place in a bank, then one that describes that. Customers are now more likely to buy from companies, which means they have more options for tailoring their offerings to their needs.
Using APIs, customers can share their financial data with other parties, no matter where it comes from, in order to gain access to new, personalised products and services.
If you’re using a mobile banking app, or any other tool in your daily life, you have complete control over how and when you access and handle your financial information.
Open Finance also gives the opportunity to construct whole new business models based on hitherto undiscovered sources of data, allowing for the development of really unique financial services.